Target Date Fund Investors More Confident About Reaching Retirement Goals

Originally posted April 15, 2014 on

Individuals investing in a target date fund within their workplace defined contribution (DC) retirement plan feel more confident about investing and meeting their retirement goals than those that don't use target date funds, according to recently updated survey results from Voya Financial's Investment Management business.

The survey was conducted by ING U.S. Investment Management, which plans to rebrand as Voya Investment Management in May 2014. ING U.S. Investment Management is part of Voya Financial, Inc., which recently rebranded from ING U.S., Inc.

In the survey, "Participant Preferences in Target Date Funds: An Update," more than half (56%) of target date fund (TDF) investors felt confident they would meet their retirement goals. In comparison, just over four-in-ten (41%) of non-TDF investors felt confident about their retirement savings. Further reinforcing this confidence among TDF investors is the survey's finding that nearly two-thirds (64%) felt they could turn their plan savings into an income stream at retirement, compared with just 43% of non-TDF investors. These findings compare similarly to results of a similar study conducted in 2011.

Overall, more than two-thirds (68%) of plan participants using TDFs reported that the investments alleviated the stress of retirement planning, increased their confidence that they were making good investment decisions, and helped them feel more assured they could meet their retirement income goals.

Target Date Fund Investors Contribute More

The survey also found that TDF investors contribute more to their retirement plans. Forty-two percent of TDF investors contribute more than 11% of their income to their workplace plan. In comparison, just 23% of those who do not invest in TDFs were contributing more than 11% of their income.

"These findings about how target date funds are influencing plan participants' feelings and savings habits provide some powerful insights that both consultants and plan sponsors can act upon," said Bas NieuweWeme, managing director and head of institutional distribution. "Considering the significant increase in the equity markets in 2013, it is noteworthy that the confidence of those that don't invest in target date funds is no stronger than it was in 2011. On the contrary, those that invest in target date funds continue to be more confident than non-target date fund investors, or demonstrating greater levels of retirement readiness."

Plan Participants Seek Glide Paths Offering Protection and Diversification

In addition to higher confidence and savings levels among TDF investors, the survey found that the vast majority of both TDF investors and non-TDF investors have a strong preference for protection against loss in the years leading up to retirement (92%) and broad diversification among both investments (92%) and investment providers (85%).

"Participants clearly want their investment providers to exhibit great care in the all-important years leading up to retirement," said Paul Zemsky, chief investment officer of multi-asset strategies and solutions. "This knowledge can help consultants and plan sponsors factor in the investment preferences of their participants when customizing glide paths for their plan demographics. Our focus and objective as investment managers is to ensure we apply those risk-return preferences in a thoughtful and disciplined way."

In addition to the updated research on plan participants use of TDFs, ING U.S. Investment Management has published"Rethinking Glide Path Design - A Holistic Approach,"a detailed analysis of how to align investment portfolio risk with the retirement objectives of participants at every stage in the plan life cycle. Understanding participant demographics and knowing their preferences allows us to create custom glide paths which are designed specifically for individual plans.

"A glide path design needs to take into account the risks of the investment portfolio relative to the overall retirement goals of plan participants over the course of a full life cycle," says Frank Van Etten, deputy chief investment officer, multi-asset strategies and solutions. "This helps maximize the probability of successful retirement - namely, allowing participants to maintain their lifestyles in retirement while not outliving their assets. To accomplish this, the investment decision at every stage of the life cycle must incorporate a holistic perspective in which in-retirement objectives are driving the process."

Survey Methodology

ING U.S. Investment Management, in collaboration with the ING Retirement Research Institute, conducted an online survey of 1,017 employer-sponsored retirement plan participants between September 16, 2013 and September 20, 2013. At 90% confidence, the margin of error in the study was +/- 3.5%. Of the respondents, 500 invested in a TDF within their plan, while 517 did not. All respondents to the survey were currently contributing to an employer-sponsored defined contribution plan, were age 25 or older, and were the primary/joint financial decision maker for their account. The survey included plans of all employer sizes. The data was weighted by household income, age and gender, among other variables, to more closely represent the demographics of the general retirement plan population. To prevent bias, ING U.S. Investment Management was not identified as the sponsor of the research.

There is no guarantee that any investment option will achieve its stated objective. Principal value fluctuates and there is no guarantee of value at any time, including the target date. The "target date" is the approximate date when you plan to start withdrawing your money. When your target date is reached, you may have more or less than the original amount invested. For each target date Portfolio, until the day prior to its Target Date, the Portfolio will seek to provide total returns consistent with an asset allocation targeted for an investor who is retiring in approximately each Portfolio's designation Target Year. Prior to choosing a Target Date Portfolio, investors are strongly encouraged to review and understand the Portfolio's objectives and its composition of stocks and bonds, and how the asset allocation will change over time as the target date nears. No two investors are alike and one should not assume that just because they intend to retire in the year corresponding to the Target Date that that specific Portfolio is appropriate and suitable to their risk tolerance. It is recommended that an investor consider carefully the possibility of capital loss in each of the target date Portfolios, the likelihood and magnitude of which will be dependent upon the Portfolio's asset allocation.

Stocks are more volatile than bonds, and portfolios with a higher concentration of stocks are more likely to experience greater fluctuations in value than portfolios with a higher concentration in bonds. Foreign stocks and small and mid-cap stocks may be more volatile than large-cap stocks. Investing in bonds also entails credit risk and interest rate risk. Generally, investors with longer timeframes can consider assuming more risk in their investment portfolio.





2014 Annual Benefit Plan Amounts

Originally posted on The Internal Revenue Service announced on Oct. 31, 2013, cost-of-living adjustments for tax year 2014, also charted here and here, that apply to dollar limits for 401(k) and other defined contribution retirement plans and for defined benefit pension plans. Some plan limits will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment, while other limits will rise in 2014.

The announcement highlighted the following:

  • 401(k), 403(b) and profit-sharing plan elective deferrals in 2014 will remain at $17,500; the catch-up contribution limit will stay at $5,500.
  • The annual defined contribution limit from all sources will rise to $52,000 from $51,000.
  • The amount of employee compensation that can be considered in calculating contributions to defined contribution plans will increase to$260,000 from $255,000.
  • The limit used in the definition of a highly compensated employee for the purpose of 401(k) nondiscrimination testing remains unchanged at$115,000.


Defined Contribution Plan Limits For 401(k), 403(b) and most 457 plans, the COLA increases for dollar limits on benefits and contributions are as follows:



Maximum elective deferral by employee



Catch-up contribution (age 50 and older during 2012)



Defined contribution maximum deferral (employer and employee combined)



Employee annual compensation limit for calculating contributions



Annual compensation of “key employees” in a top-heavy plan



Annual compensation of “highly compensated employee” in a top-heavy plan (“HCE threshold”)




“A $1,000 increase to the overall defined contribution limit will allow participants to potentially get a little more ‘bang’ out of their plan—at least if their employer wants to give them more money,” noted retirement-planning firm Van Iwaarden Associates in an online commentary on the 2014 changes. Defined Benefit Plans

  • The maximum annual benefit that may be funded through a defined benefit plan will increase to $210,000 from $205,000.
  • For a participant who separated from service before Jan. 1, 2014,the limit for defined benefit plans is computed by multiplying the participant’s compensation limit, as adjusted through 2013, by 1.0155.

“The primary consequence of this change is that individuals who have very large DB benefits (say, shareholders in a professional firm cash balance plan) could see a deduction increase if their benefits were previously constrained by the [Internal Revenue Code Section 415] dollar limit,” the Van Iwaarden posting explained. Other Workplace Retirement Plan Limits

  • For SIMPLE (savings incentive match plan for employees of small employers) retirement accounts, the maximum contribution limit will remain $12,000; the catch-up contribution limit will also stay the same, at$2,500.
  • For simplified employee pensions (SEPs), the minimum compensation amount will remain $550, while the maximum compensation limit will jump to $260,000 from $255,000.
  • In an employee stock ownership plan (ESOP), the maximum account balance in the plan subject to a five-year distribution period will rise to$1,050,000 from $1,035,000, while the dollar amount used to determine the lengthening of the five-year distribution period will increase to$210,000 from $205,000.


Non-401(k) Workplace Retirement Plan Limits



SIMPLE employee deferrals



SIMPLE catch-up deferrals



SEP minimum compensation



SEP annual compensation limit



Social Security wage base




Individual Retirement Accounts

  • The limit on annual contributions to an individual retirement account (IRA) will stay at $5,500. The additional catch-up contribution limit for those ages 50 and over will remain $1,000.
  • The deduction for taxpayers making contributions to a traditional IRA has been phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGIs) from $60,000 to $70,000, up from $59,000 to $69,000 in 2013.
  • For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the AGI phase-out range will be $96,000 to $116,000, up from $95,000 to $115,000.
  • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction has been phased out for couples with an AGI from $181,000 to $191,000, up from $178,000 to $188,000.
  • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and will remain $0 to $10,000.
  • For a Roth IRA, the AGI phase-out range for taxpayers making contributions will be $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range will be $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return who is covered by a retirement plan at work, the phase-out range will remain $0 to $10,000.
  • The AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low- and moderate-income workers will rise to $60,000 for married couples filing jointly, up from $59,500 in 2013;$45,050 for heads of household, up from $44,250; and $30,000 for singles and married couples filing separately, up from $29,500.


Contribution Misperceptions Hinder Savings Employees often have a skewed perception of retirement plan contribution limits. According to Mercer Workplace Survey results, the average participant believes that the tax-deferral limit is only $8,532, just under half the actual 2013 limit of $17,500. Looking at intended savings rates, most appear close to the perceived limit but are still far off from the actual. For those nearing retirement (age 50-plus), the perception gap is even bigger. The survey represents a national cross section of active 401(k) participants; online interviews were completed with 1,506 respondents between May 28 and June 5, 2013.

By Age: Actual Contribution vs. Perceived Contribution Limit (Average $)

Respondents were asked, “As far as you know, what is the maximum dollar amount you can defer from income taxes this year by contributing it to a 401(k)?,” and “Not counting any contributions your employer may make to your 401(k) plan over the next 12 months, how much money, if any, do you expect to put into your 401(k) plan?”

(click on chart to view enlargement)

Source: Mercer Workplace Survey, 2013.

“This data not only points to a troubling disconnect between perception and reality but also points to a false sense of security among 401(k) participants,” according to Mercer’s analysts. “It also begs the question whether participants are leaving some tax efficiency—knowingly or unknowingly—on the table.”

Thirty-four percent said they would increase their 401(k) contribution to the tax-deferred maximum “if they could live the last 12 months over again,” the survey found, which highlights the value of effectively communicating maximum contribution limits to employees and conveying how even small annual contribution increases can substantially boost the size of their retirement nest egg.

Survey: Employees don't want control over health care

Report reveals a sobering gap in employee readiness to handle and take on the shift toward consumer-driven health plans

Original article from

By Tristan Lejeune

As more and more employers look at defined contribution health care and other insurance shifts, will employees be ready? Last year, J.D. Power and Associates reported that 47% of employers "definitely" or "probably" will switch to a defined contribution health plan in the coming years.

The third annual Aflac WorkForces Report reveals a sobering gap in employee readiness to handle and take on the shift toward consumer-driven health plans and defined contribution health. A majority of workers (54%) would prefer not to have more control over their insurance options, citing a lack of time and information to manage it effectively, while 72% have never even heard the phrase "consumer-driven health care."

Aflac and Research Now surveyed 1,884 benefits leaders and 5,229 wage-earners and found arresting disconnects in their expectations, plans and views of the future. For example, 62% of employees think their medical costs will increase, but only 23% are saving money for those hikes. A full three-quarters of the workforce think their employer will educate them about changes to their health care coverage as a result of reform, but only 13% of employers say educating their employees about health care reform is important to their organization.

"It may be referred to as 'consumer-driven health care,' but in actuality, consumers aren't the ones driving these changes, so it's no surprise that many feel unprepared," says Audrey Boone Tillman, executive vice president of corporate services at Aflac. "The bottom line is if consumers aren't educated about the full scope of their options, they risk making costly mistakes without a financial backup plan."

Aflac reports what many benefits leaders instinctively know: Consumers already find health insurance decisions intimidating and don't welcome increased responsibility. Fifty-three percent fear they might mismanage their coverage, leaving their families less protected than they are now. And significant ignorance remains: Plan participants are "not very" or "not at all" knowledgeable about flex spending accounts (25%), health savings accounts (32%), health reimbursement accounts (49%), or federal or state health care exchanges (76%).

According to the report, 53% of employers have introduced a high-deductible health plan over the past three years, and that trend shows no sign of slowing. Yet more than half of workers have done nothing to prepare for changes from HDHPs, the Affordable Care Act or other system shifts.

"It's time for consumers to face reality," Tillman says. "Ready or not, they are being put in control of their health insurance decisions - and that means having to make choices that could have a big impact on personal finances. If employers aren't offering guidance to workers on how to make crucial benefits decisions, the responsibility lies in the hands of consumers to educate themselves."

The U.S. government estimates that by 2014, household out-of-pocket health care expenses will reach an annual average of $3,301. More than half (55%) of workers have done nothing to prepare for possible changes to the health care system, Aflac reports, and their savings reflect that: 46% have less than $1,000 put aside for unexpected, serious illness or injury. Twenty-five percent have less than $500.

Tillman says that what surprised her most about the data is how people seem to be ignoring such a large, tectonic shift in the landscape. It's not exactly like health care reform has been subtle and creeping.

"There's no greater awareness, no greater education, and it's a sea of change that's taking place," Tillman says. "It's all over the news; it's everywhere. But people aren't any more moved to action and education."

What happens with health care, she says, "seems to be evolving," and there may be a reluctance on the part of consumers to jump in because "hey, it may change." The shift to CDHPs, however, seems to be building in momentum, and employees would do well to wake up. The entire point of that shift, after all, is that they will be on their own, but employers do need to make sure they know that.

Benefits "are a great expense to your organization, and to have your workers and the people that you're charged with protecting not aware, not informed of how the benefits offering could impact their lives, to me that's not really safeguarding a very expensive and important benefit," Tillman says. "It benefits the employee, obviously, to know: What are my benefits, what is my employer thinking about doing, what do I need to be studying. But at the same time, it's very important to employers ... because otherwise they're not getting a very good return on their investment."

Tillman says "frequent communication is paramount" for instituting changes like this - don't send out the message once a year and then forget about it. And never underestimate the value of a personal example as a teaching method.

"A lot of times employers and HR get into a communicate-only-at-open-enrollment mode," she says. "And, even if health care reform weren't about to happen, I'd still say as an HR professional, communicate throughout the year. Communicate via every method that you can - to be sure, at open enrollment, but also on your intranet. If you've got a portal, including things in mailers, the paper tables in the cafeteria. ... the more we can highlight a benefit by showing how other employees have utilized it, that's a really impactful case."




Defined Contribution Help

Source: UBA

Workers in defined contribution retirement plans want resources from their employer to help them make the best savings decisions, a new poll by State Street Global Advisors finds. Seventy-four percent of respondents said they want clear examples on how their savings will work in the future, while 71 percent said they would like their employers to bump up their savings rate by one percentage point every year.

Taking Charge

Source: UBA

A new study finds that more defined contribution plan sponsors are taking an active role to understand and monitor the performance of the funds in their plans. Research by Callan Associates reveals that 40.7 percent of plan sponsors said they swapped out under-performing funds or managers in 2012, a 9.2 percent increase from 2011

Defined Benefits Vs. Defined Contribution

A new report finds that while defined contribution (DC) plans such as 401(k)s cost more per employee hour worked than defined benefit (DB) plans, the DC plans cost less per participant than the DB plans. The average per-participation cost for DB plans is $2.53, compared with $1.46 for DC plans, according to a new report by the Bureau of Labor Statistics.